ACIT, Circle-Suri, Birbhum, Birbhum V. M/S. S.B. Construction, Birbhum

ITA 1974/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1446 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 22-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACH ARJEEADDL
• Assessee Lawyers: KALYAN NATH
• Keywords: Rejection of books of accounts
• Section: 69C; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 1974/KOL/20 14 ASSESSMENT YEAR : 2010-1 1 ACIT, CIRCLE-SURI, BIRBHUM -VS- M/S S.B. CONS TRUCTION [PAN: ABAFS 1504 L] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI ARINDAM BHATTACH ARJEE,ADDL.CIT SR.DR FOR THE RESPONDENT : SHRI KALYAN NATH, ADDL. CIT, DR DATE OF HEARING : 18.09.2017 DATE OF PRONOUNCEMENT : 20.09.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- ASANSOL [ IN SHORT THE LD CIT A] IN APPEAL NO. 143/CIT(A)/ASL/CIR-SURI/BWN/13-14 DATED 22.08.2014 AGAINST THE ORDER PASSED BY THE ACIT, CIRCLE-SURI, BIRBHUM [ IN SHORT THE LD AO] UN DER SECTION 144 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 16.03.2013 FO R THE ASSESSMENT YEAR 2010-11. 2. WHEN THE CASE WAS CALLED ON FOR HEARING, NONE AP PEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT PETITION WAS FILED ON ITS BEHALF. A CCORDINGLY, WE PROCEED TO HEAR THE LD DR AND DISPOSE OF THE APPEAL BASED ON MATERIALS AVA ILABLE ON RECORD. 3. THE ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DISMISSING THE ACTION OF THE LD AO IN REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE FIRST INTERCONNECTED ISSUE IS HAVING 2 ITA NO.1974/KOL/2014 M/S S.B. CONSTRUCTION A.YR.2010-11 2 REJECTED THE BOOKS OF ACCOUNTS, WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF ESTIMATION OF NET PROFI T AT RS 58,59,110/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE SECOND INTERCONNECT ED ISSUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION OF RS 1 0,23,823/- U/S 69C OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE BRIEF FACTS OF THIS APPEAL IS THAT THE ASSES SEE IS A PARTNERSHIP FIRM DERIVING INCOME FROM CIVIL CONTRACT BUSINESS. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE FIRM ON 29.9.2010 FOR THE ASST YEAR 2010-11 DECLARING TOTAL INCOME OF RS 34,82,777/- ON THE BASIS OF AUDITED BOOKS OF ACCOUNTS MAINTAINED IN TH E REGULAR COURSE OF BUSINESS DULY SUPPORTED BY CASH BOOK, LEDGER, WAGES REGISTER, BIL LS AND VOUCHERS. THE LD AO FROM THE BALANCE SHEET OBSERVED THAT ASSESSEE HAD SECURED LO ANS OF RS 1,93,21,078 /- ; RS 52,62,641/- ; RS 1,02,625/- AND RS 25,10,345/- WERE OBTAINED FROM UCO BANK, SREI INFRA & FINANCE LTD , ICICI FINANCE LTD AND TATA MO TORS LTD RESPECTIVELY. THE ASSESSEE HAD DEBITED BANK INTEREST OF RS 20,18,125/ - IN THE PROFIT AND LOSS ACCOUNT. BUT NO INTEREST ON ACCOUNT OF SECURED LOAN AVAILED FROM SREI INFRA & FINANCE LTD, ICICI FINANCE LTD AND TATA MOTORS LTD WAS DEBITED. ON TH IS ISSUE, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF AMOUNT OF INTEREST PAID ON T HESE LOANS, LEDGER COPIES OF THESE THREE COMPANIES AND EXPLAIN WHETHER TAX WAS DEDUCTED AT S OURCE ON INTEREST PAYMENT. THE LD AO OBSERVED THAT THERE MUST BE SOME INTEREST PAID T O THESE FINANCE COMPANIES AND SINCE THE SAME ARE NOT REFLECTED IN THE BOOKS OF ACCOUNTS , THE SAME WAS PAID OUTSIDE THE BOOKS OF ACCOUNTS AND ACCORDINGLY CONCLUDED THAT THE BOOK S OF ACCOUNTS AND THE BOOK RESULTS COULD NOT BE RELIED UPON. ACCORDINGLY, HE SHOW CAU SED THE ASSESSEE AS TO WHY THE BOOK RESULTS SHOULD NOT BE REJECTED U/S 145(3) OF THE AC T AND NET PROFIT BE DETERMINED ON AN ESTIMATED BASIS. IN RESPONSE THERETO, THE ASSESSE E REPLIED AS UNDER:- I) IT IS STATED THAT DUMPER AND PLANT MACHINERIES OF CONTRACTORY BUSINESS ARE PURCHASED FROM THE AFORESAID COMPANIES ON HIRE PURC HASE BASIS. IT IS FACT THAT PAYMENTS ARE MADE THROUGH BANK ACCOUNT OF UCO BANK AND THE S AME ARE RECORDED IN BANK LEDGER OF THE ASSESSEE BUT INTEREST ON LOAN FOR PUR CHASE OF P & M AND DUMPER ARE NOT 3 ITA NO.1974/KOL/2014 M/S S.B. CONSTRUCTION A.YR.2010-11 3 DEBITED IN P&L ACCOUNT DURING THE F.Y. UNDER SCRUTI NY. IT IS PROPERLY RECORDED IN CASH BOOK BUT NOT CLAIMED IN P&L ACCOUNT WHICH IS AN APP ARENT MISTAKE. II) THAT THE ASSESSEEFIRM IS A WORKS CONTRACTOR AN D MAINTAINED REGULAR BOOKS OF ACCOUNTS SUPPORTED BY BILLS VOUCHERS ETC. WHICH ARE DULLY AUDITED. THAT THE ASSESSEE FIRM HAS SHOWN NET PROFIT @ 2%. YOU HAVE DIRECTED T O EXPLAIN WHY NET PROFIT @6% SHOULD NOT BE TAKEN. THAT THE SAID FIRM DERIVED NET PROFIT AFTER DEDUCTING ALL EXPENSES WHICH IS FOR THE PURPOSE OF BUSINESS. SO, QUESTION OF ESTIMATION OF NET PROFIT @ 6% DOES NOT ARISE HERE ON THE REASON THAT THE ASSESSEE FIRM MAINTAINED REGULAR BOOKS OF ACCOUNTS. III) NON-SHOWING /CHARGING OF INTEREST ON LOAN IN P&L ACCOUNT IS NOT A VALID GROUND FOR REJECTING BOOKS OF ACCOUNTS. IT IS AN UNEXPLAINED E XPENDITURE WHICH ARE NOT CLAIMED. THE EXPENDITURE INCURRED IS A BONA FIDE EXPENDITURE , RECORDED IN BOOKS OF ACCOUNT BUT NOT DEDUCTED IN P&L ACCOUNT. IT IS PURELY A TECHNIC AL MISTAKE BUT IT DOE NOT AFFECT THE REVENUE. IF IT CLAIMED IN P&L ACCOUNT THEN NET PROF IT SHOULD HAVE REDUCED TO THE EXTENT OF INTEREST PAID TO FINANCE COMPANY AS STATED ABOVE . THIS IS THE REASON FOR NOT REJECTING BOOKS OF ACCOUNTS. HOPE, THE ABOVE EXPLANATIONS SUF FICE TO END YOUR QUERIES. 5. THE LD AO IGNORED THE AFORESAID EXPLANATIONS GIV EN BY THE ASSESSEE AND RJETED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT . HE OBSE RVED THAT THE ASSESSEE HAD DECLARED 2.97% OF GROSS RECEIPTS AS ITS NET PROFIT. LOOKING AT THE BUSINESS OF THE ASSESSEE AND ALSO INCORRECTNESS OF THE BOOKS, HE ESTIMATED NET P ROFIT AT 5% OF GROSS RECEIPT AND ARRIVED AT THE ADDITION FIGURE OF RS 58,59,110/-. THE LD AO ALSO ESTIMATED THE INTEREST OUGHT TO HAVE PAID TO THE AFORESAID FINANCE COMPANI ES @ 13% PER ANNUM AND ARRIVED AT THE ALLEGED INTEREST OUTFLOW TO THESE COMPANIES AT RS 10,23,829/- AND ADDED THE SAME AS INCURRED OUTSIDE THE BOOKS AND THEREBY BECOMES UNEX PLAINED EXPENDITURE U/S 69C OF THE ACT. 6. THE LD CITA DISMISSED THE ACTION OF THE LD AO I N REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) OF THE ACT. HE DELETED THE ADDITIONS MADE BY THE LD AO BY OBSERVING AS UNDER:- 5. SECTION 145(3) CAN BE INVOKED IF ASSESSING OFFIC ER IS NOT SATISFIED ON CORRECTNESS AND COMPLETENESS OF ACCOUNTS. HERE ASSE SSING OFFICER IS REASONING HIS DECISION ON AN ALLEGED PAYMENT OUTSIDE BOOKS OF ACCOUNTS. THERE IS NO FINDING IN ASSESSMENT ORDER THAT THE BOOKS OF ACCOU NTS AND VOUCHERS ARE NOT 4 ITA NO.1974/KOL/2014 M/S S.B. CONSTRUCTION A.YR.2010-11 4 CORRECT AND COMPLETE. THE MAJOR DEFECT THAT THE ASS ESSING OFFICER IS CITING IS THAT INTEREST IS NOT DEBITED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE HERE HAS TAKEN LOAN AND BALANCE SHEET REFLECTS ALL THE LOANS. WHEN EMI IS PAID LOAN BALANCE REDUCES. IF INTEREST PORTION IS NOT SEPARATED AND D EBITED TO PROFIT AND LOSS ACCOUNT BY THE TIME LOAN ACCOUNT IS CLOSED IN BOO KS OF ACCOUNTS OF ASSESSEE THERE WILL BE AN ASSET IN BALANCE SHEET. THE ASSET POPS UP IN THE BALANCE SHEET WILL BE ACTUAL INTEREST PAID BUT NEVER CLAIMED AS AN EXPENDITURE. ALL THAT HAPPENS IS UNDERSTATEMENT OF INCOME IN PRECEDING YE ARS. THEREFORE, THIS CANNOT BE HELD AS A DEFECT IN BOOKS OF ACCOUNTS AND VOUCHE RS BECAUSE NO CASE OF A MISSING ENTRY IN BOOKS OF ACCOUNTS. 7. IN VIEW OF DISCUSSION ABOVE I HOLD THAT THE INVO KING OF SECTION 145(3) IS NOT IN ORDER. ACCORDINGLY I DIRECT ASSESSING OFFICER TO DE LETE THE ADDITION OF RS.58,59, 110/-. GROUNDS 2 AND 3 STANDS ALLOWED. 8. GROUNDS 4 AND 5 IS AGAINST ADDITION OF ALLEGED U NACCOUNTED INTEREST PAYMENT. THE ASSESSING OFFICER RECORDED IN ASSESSMENT ORDER AS UNDER:- OUT OF BOOKS INTEREST PAYMENT:- AS DISCUSSED IN TH E ABOVE PARAS, THE ASSESSEE HAS AVAILED SECURED LOAN OF RS.52,62,641/ -, RS..1,02,625/- AND RS.25,10,345/- FROM SERI INFRA & FINANCE LTD. ICICI FINANCE AND TATA MOTORS LTD. RESPECTIVELY. NO INTEREST HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH MEANS THAT THE INTEREST WAS PAID OUT OF BOOKS . THE ASSESSEE HAS FAILED TO FURNISH ANY DOCUMENT OR GIVE ANY EXPLANATION IN THI S ISSUE. THEREFORE, INTEREST @13% ON THE TOTAL SUM OF RS. 78, 75,611/- AMOUNTING TO RS. 10,23,829/- IS DISALLOWED AND TREATED AS OUT OF BOOKS PAYMENT AND ACCORDINGLY THE TOTAL INCOME OF THE ASSESSEE. ' IT IS NOTED THAT THE LOAN WAS TAKEN FOR PURCHASE OF MACHINERY UNDER HIRE PURCHASE AND EMI IS PAID ON THE SAME. WHEN INTEREST IS NOT DEBITED TO PROFIT AND LOSS ACCOUNT, IT DOES NOT BECOME A CASE OF PAYMENT OF INTEREST. THE IMPACT OF NOT DEBITING INTEREST IN PROFIT AND LOSS ACCOUNT IS DI SCUSSED IN PARAGRAPH' 6. THE FINDING OF ASSESSING OFFICER INTEREST PAYMENT IS U NACCOUNTED IS NOT BASED ON ANY CLEAR FINDING THAT THE ASSESSEE HAS ACTUALLY MADE S UCH A PAYMENT BUT ON POSSIBILITIES. THE INGREDIENTS TO MAKE ADDITION UND ER SECTION 69C IS ABSENT HERE. HENCE, THE ADDITION HAS NO BASIS TO SURVIVE. ACCORD INGLY, I DIRECT ASSESSING OFFICER TO DELETE THE ADDITION. GROUNDS 4 AND 5 STA NDS ALLOWED. 10. THE APPEAL IS ALLOWED. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 5 ITA NO.1974/KOL/2014 M/S S.B. CONSTRUCTION A.YR.2010-11 5 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) WAS NOT JUSTIFIED IN HOLDING REJECTION OF THE ASSESSEES ACCOUNTS INVOKI NG SECTION 145(3) AS NOT IN ORDER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 58,59,110/-. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) WAS NOT CORRECT IN LAW AS WELL AS IN FACT IN DELETING THE ADDITION OF RS. 10,23,829/- U/S 69C OF THE ACT. 8. WE HAVE HEARD THE LD DR. THE LD DR REITERATED T HE SUBMISSIONS OF THE LD AO. WE FIND THAT THERE IS ABSOLUTELY NO CASE MADE OUT BY T HE LD AO FOR REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) OF THE ACT. T HE INTEREST PAYMENT MADE BY THE ASSESSEE TO THESE FINANCE COMPANIES ARE DULY ACCOUN TED IN THE BOOKS OF ACCOUNTS BY DEBITING THE RESPECTIVE HIRE PURCHASE LOAN ACCOUNTS ITSELF ON EMI BASIS. THE ASSESSEE HAD NOT BIFURCATED THE HIRE CHARGES PORTION FROM EM I AMOUNT AND HAD NOT TRANSFERRED THE SAME TO THE PROFIT AND LOSS ACCOUNT AND CLAIM T HE SAME AS DEDUCTION IN THE RETURN OF INCOME. THIS CANNOT BE A VALID GROUND FOR REJECTION OF BOOKS OF ACCOUNTS AND THE BOOK RESULTS U/S 145(3) OF THE ACT. THIS HAD INFACT ONL Y RESULTED IN OVERSTATEMENT OF INCOME IN THE YEAR UNDER APPEAL. HENCE THE LD CITA HAD RI GHTLY DISMISSED THE ACTION OF THE LD AO AND RIGHTLY DELETED THE ADDITION MADE TOWARDS ES TIMATION OF NET PROFIT AT RS 58,59,110/-. SINCE THE ENTIRE PAYMENT OF HIRE CHAR GES INCLUDED IN EMI AMOUNT ARE DULY ACCOUNTED IN THE BOOKS OF ACCOUNTS WHICH ARE DULY E XPLAINED BY PROPER SOURCES, THERE CANNOT BE ANY ADDITION TOWARDS UNEXPLAINED EXPENDIT URE U/S 69C OF THE ACT. INFACT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE IN THIS RE GARD AS STATED EARLIER. WE FIND THAT THE ENTIRE ADDITIONS HAVE BEEN MADE WITHOUT APPRECI ATING THE ACCOUNTING SYSTEM AND THE ACCOUNTING ENTRIES PASSED BY THE ASSESSEE IN ITS BO OKS OF ACCOUNTS. HENCE THE LD CITA HAD RIGHTLY DELETED THE ADDITION MADE IN THIS REGAR D IN THE SUM OF RS 10,23,829/-. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6 ITA NO.1974/KOL/2014 M/S S.B. CONSTRUCTION A.YR.2010-11 6 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 20.09.2017 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.09.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ACIT, CIRCLE-SURI, BIRBHUM, AAYAKAR BHAWAN, LALK UTHI PARA, SURI-731101. 2. M/S S.B. CONSTRUCTION, NABAPALLY, P.O + P.S.- RA MPURHAT, DIST-BIRBHUM-731101. 3..C.I.T.(A)-ASANSOL. 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S